Joint Ventures in Any Country - Essay Example

Joint Ventures Joint ventures in any country is hard to operate successfully with shared control. Nearly a decade ago, the concept of joint ventures started losing its appeal to acquisitions and developing multi-national corporations as opposed to negotiating and starting a joint endeavor. However, China’s fastly growing market has increased the level of competition among companies that may be less reluctant to go for acquisitions, paving the way for successful joint ventures. As a result, many multi-national corporations are considering establishing a joint venture so as to benefit from the rapidly growing Chinese economy (Bosshart, Luedi, and Wang, 2010). Following a lift in the ban on the sale of foreign game consoles in China, the developments made it easy for Microsoft to consider a joint venture with a Chinese partner. But the Chinese lift on the ban had a condition: all the companies’ hardware and products will be produced in China. In 2013, Microsoft took the opportunity and formed the joint venture with a Shanghai media company called E-Home Entertainment, in order to make games and consoles (Hong, 2013). In this attempt at the joint venture with a regional Chinese media giant, Microsoft aims to establish itself in the lucrative gaming market in China so as to capitalize on its expertise and intellect. The two partners, which include Microsoft and BesTV New Media Co., a subsidiary of Shanghai Media Group, are to develop and sell its own gaming consoles and softwares along with entertainment related and other third party products. So far, it has only been one year since the joint venture took place and the two are determined to progress exponentially in their business. BesTV currently has nearly 18 million IPTV subscribers in China, Southeast Asia, and Eastern Europe thereby possessing a significant chunk of the market share. The combined investment from the two partners amounts to about $237 million with a 51 % share with BesTV (Hong, 2013). All of this was possible after the Chinese government decided to lift its ban on international gaming consoles thereby allowing similar business endeavors to take place. With this development, Microsoft now aims to launch one of their most popular products, Xbox One in China and explore possible business opportunities in the regional market. 2. The local Chinese gaming market has seen a regional transformation in its technology as well as consumer preferences. No longer are consumers interested in or are willing to buy low quality, inferior gaming softwares or consoles. The market has expanded and has become extremely profitable and is expected to grow in a continuous fashion in coming years (Langlotz, Rhode, and Whaley, 2008). In particular, the video games industry, the one being targeted by the joint venture between Microsoft and BesTV, is a rapidly progressing segment of the entertainment and media market. The gaming market, over the years, have become increasingly competitive locally and globally thereby posing possible threats to companies wishing or currently operating in the global market. Since the industry and the market is quite attractive, Microsoft’s joint venture is there to tap these resources that could bring in huge revenues. The gaming console by Microsoft, Xbox, is a popular collection of hardware and softwares around the world. It is also true that there is incredible demand for such products in the local market thus providing a useful opportunity for Microsoft to officially introduce the game in the lucrative market. The recent version of Xbox, namely Xbox One, is being released soon to the Chinese market with potentially significant response from gaming community. However, since the Chinese consumer segment is quite price sensitive, it is important to consider the impact of initial pricing and later changes in the prices. Nevertheless, the gaming platform has a well established reputation around the world with great sales opportunity from the local market. But, the lift in the foreign gaming console brands also means that SOny will be launching its PlayStation 4 in the Chinese market soon. Regardless of this, Microsoft is expected to perform well in the Chinese market, which has great potential. 3. China’s rapidly expanding economy and regional presence is an attracting factor for foreign investors though domestic government policies may inhibit such productive options. In the case of E-Home Entertainment by Microsoft and BesTV, the government decision to lift their ban indeed worked in the favor of many giant multinational corporations willing to operate in the country. However, it is very important to take into account the fact that the business may also be prone to software piracy and counterfeiting, a phenomenon quite common in China. But as mentioned by Langlotz, Rhode, and Whaley (2008), the Chinese gaming market has changed to incorporate a taste for good quality gaming consoles and softwares over their inferior counterparts. This, however, does not eliminate the threat from local counterfeiting companies that may pose a threat to the joint venture by Microsoft and BesTV. Again, as mentioned by Langlotz, Rhode, and Whaley (2008), unlike the mature markets in the US and elsewhere, the Chinese market is still in its growth phase. This fact makes the protection of Intellectual Property Rights (IPR) difficult to ensure in countries such as China (The Economist, 2005). Equally important is the fact that E-Home Entertainment is one joint venture which operates in the entertainment industry and thus highly depends on its IPR rights in order to avert possible threats to its sales. Microsoft’s previous aggressive strategies in order to respond to its IPR issues did not yield positive results causing it to opt for a different strategy for the protection of their IPR in China (The Economist, 2005). Indeed, China can provide a great manufacturing base to Microsoft and further research, even more than its domestic market. Yet, IPR issues are a great threat for companies trying to operate in the communications and entertainment industry. Nevertheless, the Chinese market possesses great potential in generating huge trading opportunities. After the government policy changes, the market has become more favorable for joint ventures than acquisitions or even setting up multinational corporations (MNCs). References Bosshart, S., Luedi, T. & Wang, E. (2010). Past lessons for China’s new joint ventures. [online] Retrieved from: http://www.mckinsey.com/insights/corporate_finance/past_lessons_for_chinas_new_joint_ventures [Accessed: 7 Apr 2014]. Hong, K. (2013). Microsoft Forms Joint Venture In China To Develop Games. [online] Retrieved from: http://thenextweb.com/microsoft/2013/09/24/microsoft-could-soon-re-enter-chinas-games-console-space-after-forming-a-new-joint-venture-there/ [Accessed: 7 Apr 2014]. Langlotz, A. C. H., Rhode, M. & Whaley, C. (2008). Video Games Industry Overview An Analysis of the Current Market and Future Growth Trends. [e-book] http://www.holgerlanglotz.de/downloads/BU4510_VideoGamesIndustry_LanglotzEtAl.pdf [Accessed: 7 Apr 2014]. The Economist. (2005). China: intellectual property rights. [e-book] http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-Intellectual-Property-Rights-200502.pdf [Accessed: 7 Apr 2014]. Read More